U.S. domestic beer sales are flatter than a day-old pint of Bud Light. There were 2.78 billion cases of beer sold in the United States last year, down from 2.9 billion cases five years ago.

But don’t tell shareholders of Boston Beer (SAM) or Constellation Brands (STZ). SAM, the brewer of Samuel Adams Boston Lager, and STZ, the importer of popular Mexican beers Corona and Modelo, have seen their share prices rise 90% and 54%, respectively, over the past year.

Something doesn’t quite add up here.

True, craft beer sales have held up better that those of the large megabrewers. Boston Beer — if you still can feel good about classifying Sam Adams a “craft brew” given its success in recent years — saw core shipments rise by 25% last year. And in Constellation Brands’ latest quarterly release, beer sales were up 21%.

But investors are definitely paying up for that growth, particularly in the case of Boston Beer. SAM trades at an eye-popping 47 times trailing earnings and 32 times expected forward earnings.

Company

Ticker

Trailing P/E

Forward P/E

Anheuser-Busch InBev

BUD

11.8

17.2

Boston Beer

SAM

46.5

31.8

Constellation Brands

STZ

8.6

21.3

Diageo

DEO

18.8

16.9

Heineken

HEINY

11.0

16.3

Pernod-Ricard

PDRDY

20.3

18.0

The real surprise is not that SAM and STZ have enjoyed such fantastic returns over the past year. Remember, the S&P 500 is up about 21% over the same time period, and SAM and STZ both saw their businesses do very well.

No, the surprise is how poorly the rest of the booze stocks have performed. Diageo (DEO) and Anheuser-Busch InBev (BUD) have traded sideways for the past year, and Heineken (HEINY) and Pernod-Ricard(PDRDY) actually managed to lose money.

Ironically, the factor that makes these four laggards better long-term investments is precisely what has killed them over the past 12 months: exposure to emerging markets. Heineken, for example, gets more than 60% of its sales by volume in emerging markets, and EMs account for more than half of Anheuser-Busch InBev’s sales by volume. Diageo, the leading seller of premium spirits, will get more than half its revenues from emerging markets by next year, and rival Pernon-Ricard is on pace to follow about a year later.

Meanwhile, Boston Beer and Constellation are essentially domestic companies with relatively little exposure to emerging markets (Though they are Mexican brands, Constellation only controls Modelo and Corona distribution within the United States.)

Unless you’ve been living under a rock for the past year, you’re well aware of the turbulence that has been coming out of the developing world. Argentina, South Africa, Turkey and Venezuela have all been having slow-motion currency crises, and Turkey and Venezuela have had violent political protests off and on for the past year. As a result, investors have fled emerging market stocks and punished Western companies with outsized presences in the developing world.

Is this a buying opportunity?

I would argue that it is. Emerging-market equities appear to have hit bottom in early February, and the market appears to be indicating that the worst is behind us. None of the multinational beer or spirits are wildly cheap based on their earnings multiples, but a fair amount of this is due to denominator effects—earnings are somewhat depressed due to emerging market turmoil. I would recommend accumulating shares of BUD, HEINY, DEO and PDRDY on any pullbacks.

And what about SAM and STZ? There is a lot of optimism built into the price of SAM stock, though the company continues to deliver good sales and profit growth. I consider SAM somewhat risky based on its valuation, but I also believe that the American preference for craft brews is a long-term trend that won’t be changing any time soon. I consider SAM stock attractive for aggressive portfolios.

I’m not the biggest fan of Constellation because, as a general rule, I’m not a fan of publicly traded wineries. Beer and spirits have far better branding power and, generally, fatter margins. Of course, STZ is no longer a pure wine stock; its acquisition of the Corona and Modelo brands have turned it into the third biggest beer company in America. But again, the beer market is shrinking, and I expect the euphoria surrounding STZ’s beer acquisitions to dissipate soon.

Of the six stocks considered in this article, STZ is the only one I would rate as a “sell.”

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